Honorable Prime Minister of India, Finance Minister, Governor and Chief Minister of Maharashtra, Distinguished Governors and Members of the Board of Directors, Honored Guests, Ladies and Gentlemen.
It is a pleasure to be in Mumbai for AIIB’s third annual meeting. We are grateful to the Government of India for offering to host the annual meeting and for organizing such a successful event.
After Asia’s economic growth far outpaced the global average for nearly three decades, Asia’s economy has become a global heavyweight. Asian developing countries now account for 60 percent of global growth, while roughly two-thirds of global trade is part of value chains passing through Asia. Indeed, Asia is assuming leadership in new areas.
But growth is just a means to an end. The ultimate objective is to improve people’s lives, enable individuals to reach their potential and enjoy prosperity and security. It is the dream of all of us Asians to live a middle-class lifestyle with good education and healthcare, a clean environment and consumer comforts.
Yet still today, 11 percent of Asia’s population remains in poverty. There is no room for complacency. We know that poverty is concentrated in areas that do not have good connectivity to the global market. So part of the solution is right in front of us. We simply need to act.
It is against this backdrop that AIIB was formed. Economic openness and investment in infrastructure drove Asia’s growth in the previous decades. Now, much more must be done to ensure the future continues to brighten for all of Asia.
Asian populations support global economic integration because it has brought benefits to the region. A 2014 Pew Global Attitudes survey found that most Asian countries see trade as a job creator. Unfortunately, protectionism practiced by some countries is likely to dim the prospects for all countries in the world, including themselves.
Globalization can be disruptive. A key task of governments is to ensure that the benefits of trade are widely spread—to help the losers adjust and become winners.
When China joined the WTO, free trade was a challenge for many sectors, particularly agriculture, which was not China’s comparative advantage. But the Chinese government implemented crucial reforms and economic restructuring, and improved its social policies and income redistribution. The result: In China, globalization is popular because many have benefited. China’s success rests on the government’s willingness to adapt short-term sacrifices and the people’s embrace of reform.
Looking at the prospects for developing Asia, I would ask—will we continue to have an open global trading system or will the world retreat into protectionism? I urge some developed countries to resist protectionism and remain open, and developing countries to continue opening up. We must strive to preserve those features which spread benefits, and we must rejuvenate and rethink those systems which may be weakening to find a path forward in the 21st Century—the Asian Century.
We must also revitalize the global economic institutions. The global economic order is precious, but imperfect. As developing countries increase their share of the world economy, they should have greater weight in the multilateral institutions. But, with greater weight also comes the responsibility to support them and take a lead role in reforming and financing them.
I am delighted to say that the AIIB is your bank, founded by developing Asia with the support of non- Asian countries, built on the experiences of Asia, to create the future of Asia.
A key feature of developing Asia’s success to date is aggressive infrastructure investment. The economy cannot grow and people cannot reach their potential without necessary economic infrastructure.
Between now and 2030, Asia’s investment in infrastructure must rise to USD2 trillion a year, or roughly triple what it has been in the past. This is an enormous challenge.
Where will financing for this investment come from? It will have to come from multiple sources— domestic and international, public and private. International finance can make some contribution. The task requires joint effort, and it is because of this that partnership is encoded in the DNA of AIIB.
Many of our initial projects have been prepared in collaboration with other MDBs—the World Bank, Asian Development Bank, European Bank for Reconstruction and Development and the European Investment Bank. I would like to thank all our partners for the cooperation we have achieved in our first two years of operation.
We also have stand-alone projects and expect to have more of these in the future as we increase our capacity. Quality is our first priority, and we always ensure that each project we finance is financially sustainable, environmentally friendly and accepted by local people.
In addition to our formal partnerships, I would note that our members are involved in a wide range of regional infrastructure and trade arrangements. The Belt and Road Initiative is one such arrangement. It is an invitation by China to other sovereign nations and multilateral partners to cooperate and collaborate in line with the principles of broad consultation, joint contribution and shared benefits. Other multilateral arrangements we will work with include the Greater Mekong Subregion program, the Central Asia Regional Economic Cooperation program, the South Asia Sub-Regional Economic Cooperation program and the Asia-Africa Growth Corridor. For the countries involved, it makes sense to coordinate their AIIB investments with these other programs. For AIIB, we will promote co-operation in all of these areas, provided that the projects meet the high standards we expect.
However, it is important to note that there is a limit to how much infrastructure financing can come from abroad. Today, the average debt for Asian countries is at a favorable level and continued rapid growth means countries can cautiously take on more external debt. But there are some countries that face unsustainable external debt and they will need to adjust their policies.
This issue of external debt sustainability is one of the reasons why foreign financing must work in partnership with domestic sources, including the domestic private sector and local governments. And it is for this reason that the title of this year’s Annual Meeting is “Mobilizing Finance for Infrastructure: Innovation and Collaboration.”
Well-designed technical assistance from MDBs and other sources can help developing countries design good projects and implement them effectively. Some keys to implementation are competitive bidding on contracts, independent supervision and auditing and environmental and social safeguards.
Another aspect of policy frameworks that I know of personally is pricing of infrastructure services and cost recovery.
When China opened up in the early 1980s, the country was faced with mounting infrastructure constraints and scarce fiscal resources. Early on, the government’s policies moved toward cost recovery, particularly in power and roads. China now has more kilometers of toll roads than any other country. People who had to cope with stiff tolls and high utility charges are now benefiting from extraordinary infrastructure facilities, thanks to the rational pricing which enabled the networks to expand quickly.
Malaysia and Thailand are good examples of cost recovery in the power sector. Each has average electricity tariffs above average cost to make the industry profitable, which has gone hand in hand with high electricity quality. In a number of developing countries, pricing of utilities, especially for households, falls short of cost recovery, and unless addressed properly and promptly, infrastructure bottlenecks will continue to slow down economic development.
We cannot discuss infrastructure and growth without also considering the environmental impacts of climate change. Environmental and social sustainability is a fundamental aspect of AIIB’s support for infrastructure development and enhanced interconnectivity in Asia. Consistent with the United Nations’ Sustainable Development Goals, we recognize the need to address the three dimensions of sustainable development—economic, social and environmental—in a balanced and integrated way. We also subscribe to the principles of sustainable development in the identification, preparation and implementation of our projects.
Now, let me cite examples of what AIIB-financed projects actually mean on-ground. In Gujarat, India, a USD329-million loan will support the improvement of rural roads for 1,060 villages. Connectivity is essential for accessing health and education and for participating in the market economy. These roads will benefit eight million people, of whom one-sixth are below the poverty line.
Typhoons and floods are responsible for 80 percent of natural-disaster-related deaths in the Philippines. AIIB is partnering with the Government of the Philippines and the World Bank to upgrade waste management and modernize pumping stations along Metro Manila’s main waterways.
The past year also saw AIIB’s first loan outside Asia. The Board of Directors approved a strategy which guides our approach for lending to nonregional members. AIIB’s USD210-million investment in Egypt will transform an open desert in Benban into a solar power park, hastening Egypt’s use of renewable energy sources while decreasing the country’s dependency on gas and oil.
We have been approached by countries in Africa, Latin America and Europe looking for AIIB’s help. We focus on Asia, but we also support development in other regions.
Another way of bridging the infrastructure financing gap is to create a mechanism to mobilize private capital from global long-term investors such as pension funds, endowments and insurance companies.
An example of where we are doing this is our USD150-million investment in a fund to make private equity investments in India’s infrastructure sector, with Morgan Stanley as the fund manager. Through this kind of fund, we can reach smaller projects that would not be efficient for AIIB to take on directly. And this week, we have also agreed to invest USD100-million in India’ new National Infrastructure and Investment Fund, an innovative new mechanism to attract more private capital to meet this country’s huge infrastructure needs.
In summary, AIIB is off to a good start. We have hired seasoned professionals to build the business, and we are putting more focus on hiring capable young professionals who can form the backbone of this institution for years to come. We are establishing a strong corporate culture focused on embedding our core values of being lean, clean and green. And we are developing a workplace environment free of corruption and harassment, with a culture of openness and candor underpinned by mutual respect for others.
We are investing in infrastructure in a wide range of countries, investments that are already starting to have an impact. But we must ramp up quickly because infrastructure needs in developing Asia are huge. And we need to work in partnership, particularly with the private sector and local governments. Solid global growth is crucial for our members to meet their objectives, and an open trading system is a foundation of that global growth.
I look forward to working with all of you toward this end. Thank you very much.